Commissioner of Income Tax, Trichur v. Dhanalakshmi Bank Ltd.

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **& THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS WEDNESDAY, THE 14[TH] DAY OF JULY 2021 / 23RD ASHADHA, 1943 ITA NO. 772 OF 2009** **AGAINST THE ORDER IN ITA 72/2001 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM** ## **APPELLANT/S:** THE COMMISSIONER OF INCOME TAX, TRICHUR BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX ## **RESPONDENT/S:** THE DHANALAKSHMI BANK LTD., HEAD OFFICE, NAIKKANAL, TRICHUR. BY ADVS. SRI.P.BALAKRISHNAN E SRI.MOHAN PULIKKAL SRI.NARAYANAN P POTTY THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **I.T.A. No. 772/2009** **-2-** ## **J U D G M E N T** S.V. Bhatti, J. Heard learned Standing Counsel Mr.Jose Joseph and learned Advocate Mr. Mohan Pullikkal for parties. 2. Revenue is the appellant. M/s. Dhanalakshmi Bank, Ltd., Thrissur/assessee is the respondent. The appeal is directed against the order of Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in I.T.A. No.72/Coch/2001 dated 11.08.2006. The subject appeal deals with the issues arising from the return filed by the assessee for the Assessment Year 1997-98. 2.1 The Assessing Officer, through assessment order under Section 143(3) of the Income Tax Act, (for short ‘the Act’) dated 23.03.2000, among other heads, made the following additions/disallowances. **-3-** ## **I.T.A. No. 772/2009** - (1) Disallowance on the revaluation of current securities, (2) Disallowance of broken period interest in respect of securities purchased, (3) Disallowance of gratuity payable to retired employees, and (4) Disallowance of loss on redemption of securities by treating it as capital loss. 2.2 The CIT (Appeals) though order dated 04.12.2000 in Annexure-B confirmed the additions/disallowances as made by the Assessing Officer. The assessee filed appeal ITA No.72(Coch)/2001 before the Tribunal. The Tribunal allowed the appeal of assessee in part and dismissed the appeal filed by the Revenue. Hence ,the instant appeal under Section 260A of the Act. The Revenue raises the following substantial questions of law in the appeal: **I.T.A. No. 772/2009** **-4-** “1. Whether, on the facts and in the circumstances of the case. the Tribunal is right in law: (a) In interfering with the disallowance of depreciation claimed by the assessee on current securities. (b) In interfering with the disallowance of broken period interest in respect of securities purchased. 2. Whether, on the facts and in the circumstances of the case and also in view of the specific provision of Section 40A(7) of the Income tax Act, 1961 the Tribunal is right in law in interfering with the disallowance of gratuity payable?” 3. Question no.1(a) deals with the claim on revaluation of current securities. The question is no more _res integra_ and answered in favour of the assessee by this Court in the decision . reported in _Commissioner of Income Tax v. Nedungadi Bank Ltd_[1] Similarly, question no.1(b) deals with the deduction towards broken period interest. The claim of assessee towards broken period interest is considered in _Nedungadi Bank Ltd (supra)_ and _Commissioner of Income-tax v. South Indian Bank Ltd_[2] and following > 1 (2003) 264 ITR 545 (Ker.) 2 (2000) 241 ITR 374 (Ker.) **I.T.A. No. 772/2009** **-5-** the above decisions, the questions framed in 1(a) and (b) are answered in favour of assessee and against the Revenue. 3.1 Question No.2 deals with disallowance of gratuity payable amounting to Rs.1,63,371/-. 4. We have perused the reasoning given by the Tribunal and are satisfied that the finding of fact recorded by the Tribunal is with cogent reasons. We are also of the view that the question, as framed in the facts and circumstances of this case, does not merit as a substantial question for consideration by us. Since we are in complete agreement with the findings of fact recorded by the Tribunal in paragraph nos.17 to 19, which read thus: “17. The next issue is regarding the disallowance of Rs. 1,63,371/- being the gratuity payable to the employees retired during the relevant previous year. The AO made the disallowance of Rs.1,63,371/- in respect of the gratuity payable. On appeal, the CIT(Appeals) confirmed the said disallowance. **I.T.A. No. 772/2009** **-6-** 18. The Id. counsel for the assessee submitted that that the assessee bank has taken group gratuity with LIC of India. As per the policy, the LIC will pay gratuity on the basis of actuarial valuation. But in case of some of the employees, the actual amount payable at the time of retirement and as per actuarial valuation will differ and in such cases the bank has to pay the difference to the employees. He further submitted that the amount of Rs.1,63,371/- represents the difference between theamount received from LIC and that paid by the bank to its retired employees during the financial year 1996-97. Thus, the amount payable to the employees over and above the amount received from LIC is shown as a liability in the balance sheet. The ld. counsel also relied on section 40A(vil)(a) and submitted that if the provision is made for the purpose of payment of any gratuity which has become payable during the previous year is an allowable expenditure and no disallowance can be made applying section 40A(vii)(a) of the Act. On the other hand, the ld. DR supported the order of the CIT(Appeals). 19. We have heard the rival submissions of the parties. We have also carefully considered the facts as per material placed before us. The amount of Rs.1,63,371/- represents the difference between the amount received by the assessee bank from the LIC of India in respect of the approved gratuity fund and the amount actually payable on the retirement of the employees. **I.T.A. No. 772/2009** **-7-** Moreover, this amount is in respect of those employees who had been retired during the previous year relevant to the assessment year 1997-98. We are, therefore, of the opinion that no disallowance can be made u/s.40A(vii)(a) of the Act as clause (b) specifically excludes the operation of clause (a) to section 40A(vii) where the gratuity has become payable during the previous year which means, either there is retirement or death or resignation of the employees. In this case, there is actual liability to pay the gratuity on account of retirement. Hence, in our opinion, the assessee's claim is liable to be allowed. We, therefore, direct the AO to allow the claim of the assessee bank in respect of the ovision of Rs.1,63,371/-.” Infirmity is not pointed out against the finding, or a substantial question with substantive grounds has been made out by the Revenue. Hence, the dis-alowance of gratutity by Assessing Officer is rightly interfered with by the CIT (Appeals) and the Tribunal. We see no reason to interfere with the findings of fact in the gratuity payment of Rs.1,63,371/-. Question No. 2 is answered in favour of assessee and against the Revenue. ## **I.T.A. No. 772/2009** **-8-** For the above reasons the appeal fails and dismissed accordingly. Sd/S.V.BHATTI JUDGE Sd/BECHU KURIAN THOMAS JUDGE jjj **-9-** ## **I.T.A. No. 772/2009** ## **APPENDIX OF ITA 772/2009** PETITIONER ANNEXURE ANNEXURE A ANNEXURE B ANNEXURE C TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S.143(3) OF THE INCOME TAX ACT, DATED 23.03.2000. TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITA-66/JC/C/CIT-II/2000-01 DATED 04.12.2000. TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN I.T.APPEAL NO.72/COCH/2001 DATED 11.08.2006.